The Financial Times Discovers That a Paywall Is Not a Panacea

Amid all the upheaval in the media industry, conventional wisdom has it that publishers who focus on profitable niches like financial news are likely to be better off—in part because they have paywalls. The Financial Times is often mentioned as one of the premier examples of this phenomenon, but it appears the venerable financial daily is having to make some hard decisions of its own as a result of financial pressure.

In an internal memo obtained by Politico, the managing editor of the FT, James Lamont, warned that the paper is facing “some daunting trading conditions in 2016” as a result of the tectonic shifts that continue to reshape the media business. The company is “braced for tough times in the months ahead,” wrote Lamont.

According to the memo, the Financial Times plans to cut costs in four major areas: 1.) Any existing job openings will not be filled for the time being, 2.) Travel and entertainment costs are to be reduced significantly, 3.) Part-time staff will only be hired when it is “strictly necessary,” and 4.) The production of the print edition of the paper will be streamlined in order to remove as many costs as possible.

Not that long ago, many media-industry watchers were celebrating the performance of the Financial Timesas an example of what could be achieved by a publication that was focused on a specific and high-value niche, had a firm paywall, and was making smart moves into the digital arena. In 2013, the FT became one of the first major newspapers to generate more than 50% of its revenue from its digital subscriptions and other products.

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The company recently announced that the number of subscribers to its digital version had grown by 14% compared with the same period a year earlier, giving the paper a total of 566,000 digital subscribers, and digital revenue climbed by close to 20%.

The assumed financial strength of the FT was one of the key factors cited in the company’s recent acquisition by Japanese business-news giant Nikkei Group, which bought the British paper from previous owner Pearson PLC for $1.3 billion in July of 2015. German media conglomerate Axel Springer was close to a deal, but Nikkei swooped in and snatched it away.

According to some estimates, the Japanese company paid 43 times the FT‘s operating profit, or about 10 times what a comparable U.S. news publication might fetch. This premium was justified, many argued, because of the paper’s financial strength and digital savvy.

At the time, Nikkei said that it planned to pursue a strategy of “quality growth” at the Financial Times, rather than trying to boost profit through cost-cutting. Not long after the deal closed, however, the union representing FT staff, the National Union of Journalists, alleged that the publication was refusing to meet its pension obligations. (NUJ’s members voted to accept the FT’s new pension offer in February.)

The reality is that, despite its digital growth, the Financial Times is facing the same challenge as thousands of newspapers, magazines, and other traditional print publications around the world. Namely, the fact that print advertising—which still generates far more revenue than digital—continues to shrink.

Lamont said in his memo to FT employees that print revenue at the paper has been “far softer than expected in the first quarter of the year.” According to Politico, media measurement agencies like Enders in the U.K. estimate that between 2010 and 2018, the mainstream print industry’s share of display advertising will fall from about 30% of the total to under 10%.

This broad shift is happening because advertisers are abandoning print in favor of online platforms such as Facebook, or “programmatic” markets like the ones run by Google and Apple. There are some, including media analyst Clay Shirky, who believe there could well be another dramatic drop-off in print revenue around the corner as brands realize newspapers and magazines are no longer worth the trouble.

That’s not the kind of shift that a paywall, however strong, can completely protect against. Having a strong base of digital subscribers is definitely a benefit that some competitors of the Financial Times might not have, but it isn’t enough to keep the paper from feeling the winds of change that are sweeping through the industry.

Correction, April 25, 2016: An earlier version of this article under-counted the number of FT digital subscribers and mischaracterized the union’s complaint. Both passages have been amended.